Colgate-Palmolive Company 2026 Q2 Earnings Call

Good morning, welcome to our second quarter 2026 earnings release conference call. This is Claire Ross, Executive Vice President, Investor Relations. Today's conference call will include forward-looking statements. Actual results could differ materially from these statements. Forward-looking statements inherently involve risks and uncertainties and are made on the basis of our views and assumptions at this time. Please refer to the earnings press release and our most recent filings with the SEC, including our 2025 annual report on Form 10-K and subsequent SEC filings, all available on our website, for a discussion of the factors that could cause actual results to differ materially from these statements. These remarks also include a discussion of non-GAAP financial measures, which exclude certain items from the reported results, including those identified in tables four, six, seven, eight, and nine on the second quarter earnings press release.

A full reconciliation to the corresponding GAAP financial measures and related definitions are included in the earnings press release. Joining me on the call this morning are Noel Wallace, Chairman, President, and Chief Executive Officer, Stan Sutula, Chief Financial Officer, and John Faucher, EVP, M&A and Special Projects. Noel will provide you with his thoughts on our results and our 2026 outlook. We will open it up for Q&A.

Noel? Thanks, Claire, good morning, everyone.

Before we begin today's discussion, I wanted to pause and recognize someone who's been a pillar to our investor team and to our company for quite some time. John Faucher will be retiring at the end of September, making today his 40th quarterly earnings call with the company and his 29th alongside me. John brought a rare combination of investor perspective, great business judgment, and strategic thinking, not only to our business and our earnings process, but to our M&A work, our board discussions, and broader shareholder engagement. He's taught me a lot about value creation. He's been a fantastic advisor to our leadership team and a dedicated partner to the entire analyst and investor community.

I know you know John, who has been a prolific quoter of pop culture, it's only fitting for me to end with an infamous Han Solo quote from Star Wars. Thank you, John, and may the force be with you.

Thanks, Noel. With that, let's get on to the quarter.

We're pleased to have delivered another quarter of strong top and bottom-line growth, particularly in the context of continued global volatility. Our strong results this quarter across our financial statements were broad-based, with organic sales growth in four of five divisions and 3 of our 4 categories. We delivered solid gross margin expansion before a modest tariff benefit. Base business EPS came in ahead of our expectations, even as we delivered a double-digit increase in advertising. Our balance sheet and cash flow performance through the second quarter is also very strong, with free cash flow up 18%, and we returned $1.4 billion to shareholders. The strength of our global operating model, combined with the strong execution on the ground, continues to drive our performance.

As was the case last quarter, our sales growth was led by emerging markets, which were up mid-single digits, driven by India, Brazil, Mexico, and China. We also had strong contributions from our European markets as we continue to drive organic growth and market share gains through innovation and omni-demand generation. Our Hill's business was also a contributor to growth as it continues to outperform the category with premium science-led innovation. We will work to maintain this global momentum while driving improvement in the U.S., where we were not satisfied with our performance, as you saw in the commentary. Here are some of the actions we're taking to change the trajectory of the U.S. business in the second half. Continued scale-up of our 2026 and 2027 innovation.

We're pleased with the performance of our recent innovation like Optic White Pro Series with ActivShine technology and our expansion of Fabuloso in new forms. We will continue to drive these new products with increased distribution and strong brand support. With heightened competition in many of our categories, we will take surgical actions by category and channel to drive market share improvement while still executing behind our revenue growth management playbook. We've also planned for higher levels of brand support across our core businesses to drive both our equities and win at the point of purchase. On a global basis, we'll continue to invest behind and scale our capabilities in areas like innovation, data, analytics, digital, and AI. This leaves us well-positioned to deliver perceivable superior products to accelerate category growth and drive market share improvement.

We believe our efforts in revenue growth management, promo AI, and funding the growth give us the ability to invest in advertising to build our brands while driving profit and EPS growth, even in a period of significant cost inflation. We will also deliver against our strategic growth and productivity program as we build the right organizational structure to deliver against our 2030 strategy. We've executed a strong first half of the year. While there are still some uncertainties ahead, we are optimistic the strength of our global model will continue to deliver both in the short term and set us up for long-term success. With that, I'd be happy to take your questions.

Please go ahead. Hey, good morning.

Morning, Dara. First, best wishes to John.